India & China

China is world’s most populous country and India stands second. Both India and china are

witnessing high economy growth. The market share of both the Asian Behemoth has

increased substantially- about 6.4% of worlds output at current price and exchange rate.

There is huge inflow of FDI, china having FDI inflow of $105 billion and India of about

$23.7billion

Structural change
China has a “classic” pattern. It has moved from primary to manufacturing sector, which has

doubled its share of workforce and tripled its share of output. India on other hand has moved

from predominantly agriculture to services in share of output, with no substantial increase in

manufacturing. However the the structure of employment has not changed much. Share of the

primary sector in GDP fell from 60 percent to 25 percent in four decades, but share in

employment is still more than 60 percent.

Poverty reduction
Officially china has 4 percent of the population living under the poverty line, however

unofficially china has around 12 percent. (Reflects earlier asset redistribution and basic need

provision in China under communism, plus larger mass market and role of agricultural

prices.)

India has poverty ratio much higher and persistent, between 26 percent and 34 percent

depending upon how one interprets the NSS data.

China has dazzling infrastructure. The work on infrastructure started in the late 1990. Since

the construction of roads, bridges, flyover, dams & power projects have grown by leaps and

bounds. China is spending about 12% of its GDP in infrastructure, which is substantial after

taking into consideration it is world’s second largest GDP.

However India lacks in infrastructure tremendously. As per estimates India is losing about

2% of its growth due to the infrastructure constraint. India is spending just 5% of its GDP on

infrastructure.

India has very strong banking and legal system, thanks to the democracy. Indian banking

system is being considered as one of the most robust due to strong regulation and less

interference of Central government in day to day activity of public sector bank. The biggest

advantage of India with respect to china is due to large English speaking population.

However china is catching up with India, as government has shifted its focus on these

lacunae.

Literacy in India is abysmal, around 61% compare to china’s 95%. The main reason is poor

implementation of various government initiatives to educate the mass. Expenditure on

education in India is 10.7% of annual income of household, while in china it is 12.8%. On

absolute term china is spending much more than India as per capita income of china is more

than double of India.[ CITATION Tra10 \l 1033 ]

On broad level both India and china are suffering from same problem. Both are suffering

from agrarian crisis. More people are employed in agricultural sector than its contribution to

the GDP. What both of them has to do is create more and more of employment. In china there

is lot of difference in distribution of income, even on regional level. While east china is

prospering west china has been largely left out. What china should try to do is deal with

growing level of inequlity

Strength
The biggest strength of china lies in its ability to mobilize masses of workers and capital with

speed that has contributed to some remarkable achievements.

As per The World Bank’s 2009 poverty assessment the number of impoverished Chinese left

to consume less than a dollar per day has decreased by more than 500 million between 1981

and 2004. Today, the average Chinese lives 27 years longer than in 1960, and roughly twice

the percentage of the population is enrolled in secondary education compared to 1990,

according to the World Bank[ CITATION Wor10 \l 1033 ]

Concerns
Rising Inflation
China’s major effort to avert the worst of the global financial crisis came in late 2008 in the

form of a massive RMB4 trillion (roughly US$600 billion) two-year fiscal stimulus equal to

about 13 percent of China’s 2008 GDP. The stimulus plan helped China achieve 9.1 percent

GDP growth in 2009 and shore up employment by directing record amounts of state bank

lending to bridge, railway and road building and to helping reconstruction efforts in the

earthquake-hit Sichuan Province[ CITATION Clo11 \l 1033 ]. However, this lead to spiralling

food and commodity prices. Central bank data show new loans through the first 10 months

of the year reached RMB6.88 trillion (US$1 trillion), according to The Wall Street Journal.

That amount is closing in on the RMB7.5 trillion target Beijing set earlier in the year to limit

new loan authorizations and flirts with the nearly RMB1O trillion in record new state-

directed loans set in 2009 to finance the bulk of the stimulus[ CITATION Clo11 \l 1033 ]

Factors such as flood damage and rising labour costs contributed to a 62% increase year-on-

year on the average wholesale price of 18 types of staple vegetables over the first 10 days in
November. New loans through the first 10 months of the year reached RMB 6.88 trillion (US

$1 trillion), the Consumer Price Index (CPI) a widely used inflation gauge heated up to a

two-year high of 4.4% in October year-on-year. Food prices increased 10.1% in October from

the previous year, while consumer prices increased 5%[ CITATION Fin11 \l 1033 ].

Steps by government to combat inflation

The People’s Bank of China (PBoC), China’s central bank, has moved decisively to tighten

rapid credit growth. It recently instructed banks to increase their reserve requirement ratio

nation’s lending and deposit rates — the first interest rate hike since 2007

Overheated Property Market

The real estate sector provides a sizeable revenue stream for many of China’s major

municipal governments, construction jobs for countless workers and an important investment

or financial planning component for Chinese families with few domestic alternatives for

multiplying wealth. That’s why this sector has always received largess from the government

and is the most sensitive.

Earlier this year, double-digit monthly price gains and a lending boom set off a real estate

buying frenzy. Beijing increased down payment requirements on first and second home

mortgages, raised lending rates and clamped down on cross-city investments. Recently, banks

across the country were ordered to suspend loans for third home purchases; NBS data show

sales price growth in 70 large and medium cities has decreased seven consecutive months to

8.6% in October year-on-year, down from April’s high of 12.8%.

Domestic Innovation
As per noted Chinese scholar Kenneth Lieberthal of the Brookings Institution in Ethos, China

simply does not yet have high quality corporations that know how to run global operations or

leverage technological change effectively. Many Chinese companies were formerly state-
owned enterprises used to doing everything themselves, they are not very open, and that will

limit their innovation potential. China’s 12th Five-Year Plan, which starts next year, stresses

spurring innovation as part of the country’s economic restructuring strategy. World Bank data

show R&D spending has surged from 0.57% of GDP in 1996 to 1.49% of GDP in

2007[ CITATION Ste11 \l 1033 ]

Increasingly Ageing Population

Market research firm Euromonitor International projects that by that time, China’s population

aged over 65 will increase to 222 million, up 70 percent from today’s size.

By 2030, China will look much like Italy or Japan, in terms of national age distribution, but it

will still be a developing country in terms of per capita GDP, which is a very challenging

situation. China will have the world’s largest proportion of elderly citizens in 2030. Market

research firm Euromonitor International projects that by that time, China’s population aged

over 65 will increase to 222 million, up 70% from today’s size.

Since China introduced a one-child policy in 1978, the country’s fertility rate has plummeted

from 2.7 births per woman to 1.8 in 2009, or below replacement levels, China’s total

government expenditures today on age-related programs such as healthcare, pensions and

unemployment benefits stand at 4.4%

A middle-class lifestyle
Especially in China’s largest cities like Shanghai, Beijing, Suzhou owning a car, a home and

for some, additional homes for financial security or investment purposes is a way of life

More Chinese than ever can afford to educate their children overseas, take vacations and buy

luxury items
A new horizon
Japan will not challenge China in the near future to regain the position it had held for four

decades. It recorded only 0.4% GDP growth in the second quarter of 2010 compared to the

previous quarter and 0.9% growth in the third quarter, according to Japan’s Cabinet Office.

Heavily weighed currency is not helping Japanese exports — a major driver of the country’s

economy — stays competitive in global markets[ CITATION Eco11 \l 1033 ]

China’s economic engine, though slowing, maintains brisk growth and is estimated to expand

10% in 2010, 8.7% next year and easing somewhat further in the medium term .The IMF

forecasted 10.5% GDP growth for China this year and 9.6% in 2011 in its October World

Economic Outlook. China Customs data show that Asian countries accounted for close to

two-thirds of China’s total imports in 2008. The domestic economy aspires to rely less on

increasing exports and investment and more on expanding internal demand and consumption,

moving up the value chain and building world-class technological and educational

institutions.

China is trying to shift from low-margin, export- oriented production to one driven by higher

value-added product research and development and services. It is also establishing free trade

agreements across Asia most notably establishing a free trade area with the 10-country

Association of Southeast Asian Nations (ASEAN) that came into effect at the beginning of

the year between six of the member countries.

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